Current account Guides

Basic bank accounts

Hazel Cottrell hazel.cottrell@consumerchoices.co.uk

Basic bank accounts are simple current accounts designed for those with a poor credit rating – we explore the pros and cons (Updated 9/7/09).

According to statistics from Credit Action (www.creditaction.org.uk), the total personal debt in the UK stood at a whopping £1,459 billion in July 2009, with one person being declared bankrupt or insolvent every 4.35 minutes.

Being in debt can be a nightmare, but even if you make it through to the other side, a bad credit history can haunt your past. Your credit rating can prevent you from being accepted for almost every financial product in the future, even a bank’s standard current account, because the credit check is a standard way to assess customers.

If you have poor credit history and have been refused a standard current account following a credit check, then a basic bank account could be for you.

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• What are basic bank accounts?
• Who are they for?
• Advantages
• Disadvantages
• Where can I get one?
• What's available?
• Recommendations

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What are basic bank accounts?

Basic bank accounts are simple current accounts that are designed for managing day-to-day money. They offer fewer features than a standard current account and don’t allow overdrafts.

All basic bank accounts provide you with a cash machine card (which will allow you to withdraw cash from ATMs) and some may provide you with a debit card (either Solo, Electron or Maestro, with which you can pay for items).

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Who are they for?

Basic bank accounts are available to almost everybody. They are often favoured by people with a poor credit history who have been unable to open a standard current account due to the results of their credit check. The bank or building society may want to check your credit history when you apply for an account, but even if you have CCJs or have been made bankrupt, you may still be able to open an account.

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Advantages

• You can arrange for your income such as salary, pension or benefits to be paid straight into your account.
• Most basic bank accounts allow you to arrange standing orders, direct debits and one-off money transfers to pay bills and other payments straight from your account.
• If you get an account that provides you with a debit card you will be able to use this to pay for goods and services, for shopping online and for getting cashback.
• You can have instant access to your cash over the counter at your bank or at the Post Office or using your cash machine card.
• Many banks and building societies will allow you to manage your basic bank account online.
• You can’t go overdrawn because you won’t get an overdraft limit – you won’t be adding getting into debt.

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Disadvantages

• You can’t go overdrawn with a basic bank account because you won’t get an overdraft limit – you will have no emergency fund.
• If a direct debit payment is due to be made and there isn’t enough money in your account then the bank will not make the payment. You may be charged a fee, the bank may cancel your direct debit or they might even close your account.
• You won’t earn interest on credit balances.
• You won’t receive a chequebook or cheque guarantee card.

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Where can I get a basic bank account?

The following table shows a selection of the best basic bank accounts available on the high street. All of these accounts accept Automated Credit Transfer (ACT) payments, provide a cash machine card and allow withdrawals at the Post Office. None of them require a minimum amount to open an account except Nationwide, which requires £1.

Provider	Package name	Debit card	Free buffer zone	Charge for unpaid direct debit
Halifax / Bank of Scotland	Easycash		£10	£15
Lloyds TSB	Cash Account		£10	£20
Co-operative Bank	Cashminder			£19.50*
HSBC	Basic Bank Account		£10	No*
Natwest	Step Account			£38**
Royal Bank of Scotland	Key Account			£38**
Yorkshire Bank	Readycash			£35
Barclays	Cash Card Account			£15
Alliance and Leicester	Basic Cash Account			£25
Nationwide	Flex Cash Card			£30

Source: FSA Money Made Clear (www.moneymadeclear.fsa.gov.uk). Table correct as of April 2009.

*The account may be closed if a direct debit is refused three times
**The bank may cancel direct debits if you don’t have enough to pay them on more than one occasion.

Is there a basic bank account with no credit check?

If you are not accepted for these high street basic bank accounts due to the severity of your credit history, then you may want to consider the One Banking Account. You can open an account with One Banking without any credit checks at all and they claim that they “certainly won’t turn you away due to any aspect of your previous financial history”. This account can be managed online, by text or over the phone and will cost you £12.50 per month plus a one-off opening fee of £30.

This is pricey, but if you have exhausted all other options, it may be worth it. You will get your own account manager who will help you manage your money and who will set aside the money needed for all your regular outgoings including bills, payments and standing orders. Any money left from your salary can then be transferred onto a prepaid MasterCard which you can use for everyday spending in shops and online.

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What's available?

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Recommendations

Basic bank accounts may be your only option if you have a poor credit history and although limited, there are still many benefits to these accounts. Furthermore, if you use your account properly and prove your reliability to your bank, you may be able to upgrade to a standard current account at a later date.

• If you want to open a basic bank account, then Halifax, Bank of Scotland and Lloyds TSB are good places to start. All three offer accounts which provide you with a debit card and a £10 free buffer zone and have relatively low charges for unpaid direct debits.
• If you find it much easier to overspend when you pay by card, because it doesn’t feel like “real money” then you may be better choosing an basic bank account that doesn’t come with a debit card, for example the Basic Cash Account from Alliance & Leicester. Having to withdraw and then hand over hard cash may make you think more carefully about which purchases are really essential.
• If you are consistently denied an account with high street banks, you can apply online for a One Banking Account (www.onebanking.co.uk). Although it is costly, there are no credit checks which make it a useful last resort.

Top Tip – If possible, pay your income straight into your basic bank account. This will improve your chances greatly if you ask the bank for an upgrade at a later date.

Top Tip - If you have a bad credit history or are struggling with debts you can get help and advice from organisations like the Consumer Credit Counselling Service (www.cccs.co.uk), National Debtline (www.nationaldebtline.co.uk) and the Citizens’ Advice Bureaux (www.citizensadvice.org.uk).

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